Jan. 28 (Bloomberg) -- The Canadian dollar traded close to
a six-month low versus its U.S. counterpart as signs of slower
economic growth weighed on demand.

Canada’s dollar remained lower after Toronto-Dominion Bank,
Bank of Nova Scotia and four other Canadian lenders had credit
ratings cut by Moody’s Investors Service because of high
consumer debt and elevated house prices. The currency pared
losses earlier today as commodity price strengthened, including
crude oil, the nation’s largest export.

“The downgrade is a near-term catalyst for Canadian dollar
weakness,” Adam Button, a currency analyst at Forexlive.com,
said in a telephone interview from Montreal. “This will only
add to negative Canadian dollar sentiment.”

The loonie, as the Canadian dollar is called for the image
of the aquatic bird on the C$1 coin, was little changed at
C$1.0063 per U.S. dollar at 5 p.m. in Toronto, after reaching
its lowest point since July 26. One loonie buys 99.37 U.S.
cents.

Commodities Prices

“On the back of commodity prices, a few speculators have
jumped onto the back of the loonie,” Dean Popplewell, head
analyst at the online currency-trading firm Oanda Corp., said on
the telephone from Toronto. “The meat of fundamental data does
not come out until the end of the week, that’s when we will see
the real players back in play. A lack of interest in the loonie
has found it easy to sway.”

A technical measure indicated its recent decline may have
been too far, too fast. The 14-day relative strength index
against the U.S. dollar reached 25.6 percent, below the 30 level
that some traders see as sign that an asset may be about to
reverse direction.

Hedge funds and other large speculators decreased their
bets that the Canadian dollar will gain against the U.S. dollar,
figures from the Washington-based Commodity Futures Trading
Commission show. The difference in the number of wagers on an
advance in the Canadian dollar compared with those on a drop --
so-called net longs -- was 57,952 on Jan. 22, compared with
68,668 a week earlier.

Market Positions

“I think the market was pretty long of Canadian dollars in
general and we’re trading through levels that continue to see
positions get cut,” Matthew Perrier, director of foreign
exchange at Bank of Montreal, said by phone from Toronto. “With
the Bank of Canada meeting last week, it’s just taken a little
bit of shine off the currency.” A long position is a bet that
an asset will increase in value.

The Bank of Canada will auction C$2.9 billion ($2.87
billion) of 10-year notes maturing June 2023 with a 1.5 percent
coupon on Jan. 30.

Implied volatility for three-month options on the U.S.
dollar versus the loonie touched as high as 6.8 percent, the
highest since Nov. 2. Implied volatility signals the expected
pace of currency swings and is quoted by traders to set options
prices.

The currency fell after a report last week showed Canadian
the annual inflation rate held at a three-year low of 0.8
percent in December, keeping it below the bottom of the central
bank’s target band, as food and shelter costs moderated.

Central Bank

The Bank of Canada has kept its policy interest rate at 1
percent since September 2010, the longest pause since the 1950s,
while lowering the possibility of a rate increase. The bank cut
its forecast for growth this year to 2 percent from an October
forecast of 2.3 percent, last week.

“The market is still looking at the softer tone from the
Bank of Canada last week,” Shane Enright, executive director of
currencies at Canadian Imperial Bank of Commerce, said in a
telephone interview from Toronto. “You’re seeing rotation out
of growth currencies in general.”

Toronto-Dominion, the last publicly traded bank rated AAA
by Moody’s, was cut to Aa1, the ratings firm said today in a
statement. Bank of Nova Scotia fell to Aa2 and the ratings on
Bank of Montreal, Canadian Imperial Bank of Commerce, Caisse
Centrale Desjardins du Quebec and National Bank of Canada were
lowered by one level.

“High levels of consumer indebtedness and elevated housing
prices leave Canadian banks more vulnerable than in the past to
downside risks the Canadian economy faces,” Moody’s said in a
statement.

The loonie has declined 3.3 percent during the past six
months among the 10 developed-nation currencies monitored by the
Bloomberg Correlation-Weighted Indexes. The greenback fell 3
percent.